| Consensus | Actual | Previous | |
|---|---|---|---|
| Change | 0bp | 0bp | 0bp |
| Level | 0.25% | 0.25% | 0.25% |
Highlights
The Bank of Japan's nine-member board decided in a unanimous vote to maintain the target for the overnight interest rate at 0.25%, as widely expected, after leaving it steady in September and voting 7 to 2 to hike the rate to the current level from a range of 0% to 0.1% in July, citing gradually rising inflation expectations among households and businesses. The bank is widely anticipated to raise rates in December as part of its policy normalization process following a decade of large-scale monetary easing aimed at reflating the economy.
Noting that real interest rates are"at significantly low levels," the BOJ said it will"continue to raise the policy interest rate and adjust the degree of monetary accommodation" If economic growth and inflation evolve in line with its latest outlook.
In their quarterly Outlook Report, BOJ policymakers largely maintained their medium-term growth and inflation projections: GDP +0.6% (vs. +0.6% in July) in fiscal 2024 ending next March, +1.1% (vs. +1.0%) in fiscal 2025 and +1.0% (vs. +1.0%) in fiscal 2026: core CPI (excluding fresh food) +2.5% (vs. +2.5%) in fiscal 2024, +1.9% (revised down from +2.1% in light of lower crude oil prices) in fiscal 2025 and +1.9% (+1.9%) in fiscal 2026.
"Japan's economy is likely to keep growing at a pace above its potential growth rate (estimated by the bank to be in a range of 0.5% to 1%), with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions," the bank said, repeating its outlook in the July report.
Board members also maintained their risk assessment, saying,"There remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior."
"Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the bank said, repeating its view in the July report."In particular, with firms' behavior shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices."
Risks to growth are"generally balanced," the bank said, compared to its July view that those risks were"skewed to the upside for fiscal 2025." Risks to inflation are skewed to the upside for fiscal 2025 (wage pressures and price markups may turn out to be higher than expected), it said, updating its July assessment that those risks were"skewed to the upside for fiscal 2024 and 2025."
Noting that real interest rates are"at significantly low levels," the BOJ said it will"continue to raise the policy interest rate and adjust the degree of monetary accommodation" If economic growth and inflation evolve in line with its latest outlook.
In their quarterly Outlook Report, BOJ policymakers largely maintained their medium-term growth and inflation projections: GDP +0.6% (vs. +0.6% in July) in fiscal 2024 ending next March, +1.1% (vs. +1.0%) in fiscal 2025 and +1.0% (vs. +1.0%) in fiscal 2026: core CPI (excluding fresh food) +2.5% (vs. +2.5%) in fiscal 2024, +1.9% (revised down from +2.1% in light of lower crude oil prices) in fiscal 2025 and +1.9% (+1.9%) in fiscal 2026.
"Japan's economy is likely to keep growing at a pace above its potential growth rate (estimated by the bank to be in a range of 0.5% to 1%), with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions," the bank said, repeating its outlook in the July report.
Board members also maintained their risk assessment, saying,"There remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior."
"Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the bank said, repeating its view in the July report."In particular, with firms' behavior shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices."
Risks to growth are"generally balanced," the bank said, compared to its July view that those risks were"skewed to the upside for fiscal 2025." Risks to inflation are skewed to the upside for fiscal 2025 (wage pressures and price markups may turn out to be higher than expected), it said, updating its July assessment that those risks were"skewed to the upside for fiscal 2024 and 2025."
Market Consensus Before Announcement
The Bank of Japan's nine-member board is widely expected to decide in a unanimous vote to maintain the target for the overnight interest rate at 0.25% at their two-day ending on Thursday amid gyrations in financial markets including the recent jump in the dollar toward Y153 from a low of around Y142 hit in late September. Economists and market participants expect the bank to raise its policy rate by 25 basis points at the Dec. 18-19 meeting. The board stood pat in September after voting 7 to 2 to hike the rate to 0.25% from a range of 0% to 0.1% in July, citing gradually rising inflation expectations among households and businesses.
Governor Kazuo Ueda told reporters in Washington on Oct. 24 after a regular meeting of the Group of 20 finance ministers and central bank governors that the BOJ still has time to consider when to raise interest rates as part of its policy normalization process following a decade of large-scale monetary easing aimed at reflating the economy. In March, the bank conducted its first rate hike in 17 years and ended the seven-year-old yield curve control framework in a 7 to 2 vote.
In their quarterly Outlook Report, BOJ policymakers are likely to largely maintain their medium-term growth and inflation projections: GDP +0.6% in fiscal 2024 ending next March, +1.0% in both fiscal 2025 and 2026: core CPI (excluding fresh food) +2.5% in fiscal 2024, +2.1% in fiscal 2025 and +1.9% in fiscal 2026. Board members are also expected to maintain their risk assessment, saying,"There remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior."
Governor Kazuo Ueda told reporters in Washington on Oct. 24 after a regular meeting of the Group of 20 finance ministers and central bank governors that the BOJ still has time to consider when to raise interest rates as part of its policy normalization process following a decade of large-scale monetary easing aimed at reflating the economy. In March, the bank conducted its first rate hike in 17 years and ended the seven-year-old yield curve control framework in a 7 to 2 vote.
In their quarterly Outlook Report, BOJ policymakers are likely to largely maintain their medium-term growth and inflation projections: GDP +0.6% in fiscal 2024 ending next March, +1.0% in both fiscal 2025 and 2026: core CPI (excluding fresh food) +2.5% in fiscal 2024, +2.1% in fiscal 2025 and +1.9% in fiscal 2026. Board members are also expected to maintain their risk assessment, saying,"There remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior."
Definition
The Bank of Japan is the central bank of Japan. The Bank of Japan Act states that the bank's monetary policy should be aimed at"achieving price stability, thereby contributing to the sound development of the national economy." The nine-member policy board reviews economic conditions at home and abroad before making a policy decision. There is no specific time for the announcement. The board holds eight two-day Monetary Policy Meetings a year, in January, March, April, June, July, September, October and December. At each meeting, the board votes on the proposals on the bank’s monetary policy stance and the basic guideline on how to achieve the policy target submitted by the chair of the board, who is the bank governor.
Description
The announcement of the bank’s monetary policy decision after each meeting can cause a market reaction, even when there is no change to the policy stance. Markets tend to look ahead toward a policy shift, pricing in a change to the bank’s targets for overnight and long-term interest rates, the pace of financial asset purchases or the scale of market operations.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
